Scottish Court of Session Decisions

Subject_1 BANKRUPT.
Subject_2 DIVISION IV.

Disposition by a Bankrupt in favour of his whole Creditors.

Competition the Creditors Assignees of Mr David Watson, with David Muirhead of Linhouse

Date: 17 November 1725
Case No. No 238.

A disposition by a bankrupt to his whole creditors, equally and proportionally, where no partial favour is done, but each preferred according to his diligence, not reducible either upon the act of 1621, or that of 1696.

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Mr David Watson having contracted great debts, did upon 2d May 1723, convey his whole effects in favour of his creditors ‘to be disposed of by them or their trutees, and the price to be applied towards the payment of their debts, equally and proportionally according to their several rights and diligences:’ And particularly, he assigns in favour of his creditors, the sum of 8000 merks due to him by Mr William Violand, professor of humanity in St Andrew's; and this assignation was duly intimated to Mr Violand by one of the creditors, as procurator for the rest, upon the 6th of the same month. Mr Muirhead, one of the creditors, thinking to provide better for himself than was done by the assignation, did thereafter arrest in the hands of the said Mr Violand, upon the 13th of the said month.

The case coming to be tried in a multiple-poinding, it was argued for the assignees. That the assignaton being duly intimated, did fully denude Mr Watson of the sums assigned, so that they could not be affected by diligence at the instance of his creditors.

It was answered for the arrester, That the assignation was null in terms of the act 1696, being a voluntary right granted by a notour bankrumpt; in which circumstances, he could do no to invert, alter, or prevent the legal rule of preference amongst his creditors, which is determined to be according to their diligence: It would, indeed, be giving a power no way agreeable to the state of bankruptcy, to indulge one in that condition, by any voluntary deed of his, to disappoint even the chance of his creditors their diligence, and, to bring them in, though pari passu, contrary to the tenor of our law which prefers the vigilant according to their diligence. 2do, Creditors being under no obligation to accept of any disposition, but having by the law right to prosecure their diligence, no voluntary right made by the dyvour, unless they accept, can deprive them of their right to use, or the benefit of their diligence when used; and though all the rest accept, it is in the power of any one that flanks out, to follow forth his diligence; in which, the bankrupt's hands by the law being tied up, the creditor cannot be prejudged.

Replied for the creditors assignees: That allowing Mr Watson was, at the date of this disposition to his creditors, a notour bankrupt in terms of the act 1696; yet they apprehend this disposition is neither null nor reducible. And for clearing this, it was offered to consideration, 1mo, That though a notour bankrupt can do no fradulent, deed in prejudice of his lawful creditors, he still remains proprietor; his bankruptcy does not denude him of his estate real or personal, nor of the power of conveying it by voluntary rights. 2do, That voluntary rights, even granted in favour of his creditors, are not simply null, but make a conveyance; though such conveyance be reducible upon the statute, if fraudulent. As to the first, His disposition for an onerous cause will effectually convey his property; the onerous purchaser will be secure, and his right not subject to a reduction upon this statute. This the assignees apprehend is a demonstration, that bankruptcy does not dived the bankrupt, or incapacitate him to grant voluntary conveyances. As to the second, Supposing a notour bankrupt dispone his lands in favour of a creditor, and this creditor convey to an onerous purchaser; it is thought it could not be a question but the purchaser would be secured, however the creditor his author be liable in repetition. In like manner, supposing the bankrupt grant a disposition to his whole creditors, equally and proportionally, which they accept of, and take infeftment thereon; if the bankrupt afterwards contract debts, his other creditors cannot plead, that the disposition was null, and the subjects disponed affectable by their diligence. And, in the last place, If a bankrupt grant a voluntary conveyance of land or money, to one creditor in prejudice of the rest, it is thought, that neither the superior of the land so disponed can object the nullity, nor the debtor whose debt was assigned, refuse payment upon the head of bankruptcy. These instances, are sufficient to make it evident, that voluntary conveyances granted by a bankrupt in favour of his creditors, are not simply null, but reducible; and that nothing more is introduced by the statute 1696, or indeed intended, but to tie up the bankrupt's hands from doing fraudulent deeds in prejudice of his lawful creditors, and to give a right to his creditors to reduce such deeds done to their prejudice.

This being established, the assignees apprehend that their competitor, the arrester, mull subsume, and say, “That this deed granted by Mr Watson is a fraudulent deed done to the arrester's prejudice.” As to which it is contended, There is not the least pretence of fraud in the case. Suppose a man, owing 20,000 merks, has his stock reduced, by shipwreck, fire, or other misfortune, to 10,000; the debtor, willing to do all justice to his creditors, divides his money equally among them: Can this be called a fraudulent, deed, when he, without any trouble or charge, gives them all the satisfaction they could possibly obtain after a course of expensive diligence? And as this is the present case, it cannot in any view be fraudulent; on the contrary, it is the most honest and fair thing a bankrupt can do; a deed neither fraudulent, nor to the prejudice of one creditor in favour of another; they have his whole effects divided among them, according to their several rights and diligences: They are not obliged to discharge their debts upon drawing their proportion, which is the case of a statute of bankrupt in England; their debts still subsift against the debtor's, person, and any future acquisition. Neither is any ground of preference, competent to one creditor against another, cut off: The disposition is expressly qualified “to each according to his rights and diligences;” and so if one creditor had an inseftment, and another a preferable arrestment, they in consequence of this disposition would draw their whole sum, leaving to the simple personal creditors, their proportion only of what remained: So that the sole intention of such a disposition is, to denude the debtor of his funds by one single deed, and to state his right in his creditors, without the expensive circuit of legal conveyances by adjudications; poindings, and furthcomings; and, at the same time, to preserve an equality amongst them. This being the only possible design and consequenee of such a disposition, it is submitted, if it can in any sense he reckoned prejudicial to one of all of the creditors. It is true, such a disposition does prevent the benefit that might arise to one creditor, by outrunning another in the course of his diligence, and the little arts made use of for that purpose: But sure, being deprived of this dishonest advantage, this turpe luerum, can never be construed in law a damage, or such a prejudice as to found an action of reduction.

As to the second point in the arrester's pleading, touching the necessity of acceptance; The assignees admit, that the objection would have its weight, if the case were to be determined by the Roman law, where a disposition, till accepted by the disponee, conveys no right. But we follow not the Romans in this matter: We hold; that a disposition in any person's favour needs no acceptance, but that it directly establishes the right in him, even in his absence, and without his knowledge: Yea, so certain is this, that in a deed betwixt two, a right may be established in favour of a third, without his knowledge or concurrence, which it shall not be in their joint powers thereafter to recal. Thus, in the present case, the assgnation, when intimated in the creditor's name, fully transferred the debt in their favour; which could not be destroyed, but by their positive rejection of the right. The assignees need not go about to establish this by authorities or decsions; it is a principle in our law, and so laid down by Lord Stair in his Institutions, L. 1. t. 10. § 4. & 5.

‘The Lords founds, That a disposition simple, uaqualified, and completed by a bankrupt in favour of his whole creditors, was not reducible upon the act 1696, at the instance of a posterior arrester.’

Fol. Dic. v. 1. p. 85. Rem. Dec. v. 1. No 61. p. 117.

*** The same was found in the case, 25th July 1726, Competition of Eymouth's Creditors, voce Competition.